Grants used as per terms & condition for particular event held abroad doesn’t require CBDT approval

ITO Vs Sports Goods Export Promotion Council (ITAT Delhi)

ITAT Delhi concluded that grants were given specifically for participation in a particular event held in abroad, grant was utilized as per terms and conditions and it was not free for the assessee to use the funds voluntarily. Accordingly, approval of CBDT u/s 11(1)(c) of the Act not required.

Facts- The present appeal is preferred by the revenue mainly on the ground that CIT(A) erred in holding that spending by the trust outside India, without approval of CBDT u/s 11(1)(c) of the Act is permissible, despite the fact and ration of relied upon cases were not directly related to application of section 11(1)(c) of the Act.

Conclusion- CIT(A) has granted relief to the assessee for AY 2012-13, 2013-14 and 2014-15 under identical facts and circumstances, wherein, it was held that grants were given specifically for participation in a particular events held in abroad, the grant approval included a condition that a separate account for the projects have to be maintained. The assessee had utilized the funds as per terms and conditions of grant and the grants were not to be utilized for any other purpose than for which it was issued and also execution of the project was not to be entrusted to any other organization. Therefore, it is evident that the assessee is not free to use the funds voluntarily as per its own whims and fancies and the same has to be spent as per the terms and conditions of the grant.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal has been directed against the order of Ld. Commissioner of Income Tax (Appeals ) 36 New Delhi dated 15.3.2018 for Assessment year 2011-12.

2, Grounds raised by the Revenue read as follows:-

“1. On the facts and in the circumstances of the case and in law, whether the Ld. CIT (A) was correct in holding that spending by the trust outside India without the approval of the CBDT u/s 11(1 )(c) of the Act is permissible, despite that the facts and ration of relied upon cases were not directly related to application of section 11 (1 )(c) of the Act.

2. On the facts and in the circumstances of the case and in law, whether the Ld. CIT (A) erred in not appreciating the decision of the Hon’ble Delhi High Court in the case of NASSCOM, in which the Hon’ble Court held that non observance of the condition in section 11(1 )(c) of the Act amounts to treating the said section ‘infructuous’.

3. On the facts and in the circumstances of the case and in law, whether the Ld. CIT (A) was correct in not appreciating that it was not established that the amount given as grant for specified purpose was actually utilized for the said purpose.

4. On the facts and in the circumstances of the case and in law, whether the Ld. CIT (A) was correct in not appreciating as to whether it is open and permissible for a trust to receive any amount for any activity, which is not forming part of its income u/s 11 and 12 of the Act, especially after incorporation of proviso to section 2(15) of the I. T. Act.

5. On the facts and in the circumstances of the case and in law, whether the Ld. CIT (A) was correct in treating of the Govt, grant as exempt income, not to be included as receipt without appreciating that as per I. T. Act no such exemption has been made for Govt, grants, even though for specific purposes,

6. The appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of hearing.”

3. Supporting the assessment order the Ld. Sr. DR submitted that the Ld. CIT(A) was not correct in holding that spending money by the trust outside India without the approval of CBDT under section 11(1)(c) of the Act is permissible, despite that the facts and ratio of decisions relied upon cases were not directly related to application of section 11(1)(c) of the Act. Ld. Sr. DR submitted that the Ld. CIT(A) has also erred in not appreciating the decisions of Hon’ble Delhi High Court in the case of NASSCOM in which it was held that non observance of the condition in section 11(1)(c) of the Act amounts to treating the said section infructuous. Ld. Sr. DR also submitted that Ld. CIT(A) was correct in not appreciating as to whether it is open and permissible for a trust to receive any amount for any activity which is not forming part of its income under section 11 and 12 of the Act especially after incorporation of provision to section 2(15) of the Act. Therefore, Ld. Sr. DR submitted that the impugned first appellate order may kindly be set aside by restoring that of the AO. Supporting the first appellate order the Ld. assessee’s representative submitted that the Ld. CIT(A) after considering the facts and circumstances of the case rightly granted relief to the assessee by following the rule of consistency as the Ld. CIT(A) -40 New Delhi had accepted appellant’s grounds for assessment years 2012-13, 2013-14 and 2014-15 i.e. subsequent assessment years on the identical facts and circumstances. Therefore the Ld. CIT(A) was also right in following the order dated 09.02.2018 of Ld. CIT(A) -40 and granting relief to the assessee.

4. On careful consideration of the rival submissions from the first appellate order we observe that Ld. CIT(A) has allowed appeal of the assessee for AY 2011-12 with following observations and findings:

“4.2.3.1. I have considered the assessment order, submissions of the appellant, the Remand Reports both by the Assessing Officer as well as comments of the Joint Commissioner of Income Tax and rejoinders of the appellant. The AO has disallowed the said expenses by holding that income applied on activities outside India is not eligible for exemption unless the conditions laid down the provisions of section 11(1)(c) are met. It was also noted that the appellant has neither engaged in promotion of international welfare in which India is interested nor the appellant has furnished any approval of the CBDT as required under the said section.

4.2.3.2. The appellant has relied upon the judgment of the Hon’ble ITAT Delhi in the case of Apparel Export Promotion Council for the year 1998-­99 in ITA No.2613/Del/2005 where expenditure incurred outside India on participation in fairs, buyers and sellers meets and delegation expenses have been allowed. If has further been mentioned that the appeal of Revenue has been dismissed by the Hon’ble Delhi High Court and Hon’ble Supreme Court. It has also been submitted that the case of the appellant is exactly the same as referred to in the case of Apparel Export Promotion Council and that the formation of aims and objects are also similar, the only difference being the product segment, i.e., promotion of export of sports item of India in the case of appellant as against apparel by Apparel Export Promotion Council. It has also been submitted that Ministry of Commerce is providing grants to the appellant to achieve the objects of export promotion and the said grant specific to the fares and exhibition or programmes for promotion of Indian Export of Supports Goods and Toys. It has further been submitted that the appellant does not have any discretion to spend these funds and as per the grants approval, any unspent money is to be refunded to the Ministry. It has also been submitted that these grants cannot be considered as voluntary contribution as defined under section 12 and thus cannot be concluded in total income of the appellant under section 11. Reliance has been placed on the decision of the Delhi High Court in the case of DIT Vs. Society for Development alternative [(2012) 205 taxman. 373 (Delhi)] and also in the case of Nirmal Agricultural Society vs. ITO [71 ITD 152 (Hyd.) and also in case of Dy. Director of Income-tax vs. Centre for World Solidarity (ITA No. 1443/Hyd/2014) of Assessment Year: 2011- 12.

4.2.3.3. I have also considered the documents through which administrative approval and expenditure sanction for release/approval of grant in aid was given to the appellant. It is seen from these documents that the grant in aid has been sanctioned for participation in specific events, details of which are as under:

4.2.3.4. Vide letter dated 09.02.2018 the appellant had the appeals of subsequently years i.e A.Y 12-13, 13-14 and 14-15 which were pending before Hon’ble CIT(A) -40 has been deposed-off and concluded. The Hon’ble CIT (A) – 40 had accepted the appellant’s grounds of appeal. The appellant has further submitted that the facts and grounds of appeal of A.Y 2011-12 are similar to the facts and grounds of appeal for the A.Y 2012-13, 13-14 and 14-15. Therefore, maintaining judicial discipline and respectfully following the decision of Ld. CIT(A), the appeal on this ground is allowed.”

5. The Ld. CIT(A) has granted relief to the assessee by following the order of ITAT in assessee’s own appeals for assessment years 2012-13, 2013-14 and 2014-15 dated 23.09.2022 wherein the similar issue, under identical facts and circumstances; has been decided in favour fo assessee. The relevant part of said order is as follows:-

“8. We have heard the parties, perused the material on record and gave our thoughtful consideration.

9. It is found from the record that the Ld.CIT(A) has considered the assessment order submission of the assessee and the remand reports both by Assessing Officer as well as comments of Joint Commissioner of the Income Tax and also the rejoinder of the assessee. While dealing with the appeal filed by the assessee and it is found by the Ld.CIT(A) that the grant in aid has been sanction for participation in specific events mentioned hereunder:-

i. Participation in ISPO 2010 at Germany ii Participation in Spielwarenmesse International Toy Fair at Germany iii Participation in American International Toy Fair at America

10. The Ld.CIT(A) further found the following in respect of above grant are as under:-

a). Grants have to be kept in separate account with State Bank of India/ its subsidiaries/Nationalized Banks.

b). Detailed account of each payment are to be kept together with the documents/vouchers etc. as evidence of actual expenditure.

c). Grant is not to be diverted or utilized for the purpose other than that for which it is sanctioned. It has also been mentioned that the execution of project/study for which the grant is made shall not be entrusted to another institutions or organizations.

d). The accounts of project shall be open for audit by the sanctioning authority and also by the Pay and Account Office of the Department of Commerce as per Rule 211 of tire GFR and will be subject to audit by the C&AG of India.

e). Any unspent amount with interest at the rate of 10 per cent from the date of release of the fund is to be surrendered to the Government of India.”

11. Thus, it is evident that the grants are given specifically for participation in a particular events held in abroad, the grant approval includes a condition that a separate account for the projects have to be maintained. The assessee has utilize the funds as per the terms and conditions of the grant and the grants are not to be utilized in any other purpose than for which it is issued and also that the execution of the project is not be entrusted to any other organization. Further, the up spent grant along with interest @10% from the date of release of the fund has to be reimbursed by the Government. Therefore, from the above facts, it is evident that the assessee is not free to use the funds voluntarily as per its own whims and fancies and the same has to be spent as per the terms and conditions of the grant.

12. The Hon’ble Delhi High Court in the case of Director of income Tax Vs. Society for Development Alternatives (2012) 205 Taxman 373 Delhi has held as under:-

“The findings recorded by the Tribunal are that the assessee had received grants for specific purposes from the Government, non-Government, foreign institutions, etc. These grants were to be spent, as per the terms and conditions of the grants. The amount, which remained unspent at the end of the year, got spilled over to the next year and was treated as unspent grant. The Tribunal, therefore, held that the assessee was not free to use the grants voluntarily as per its sweet will and, thus, these grants were not voluntary contribution as per section 12. [Para 7]

In view of the aforesaid factual position, the appeal preferred by the revenue was liable to be dismissed. [Para 10]”

13. Further, in the case of Society for integrated Development in urban and rural areas (SIDUR) Vs. DCIT, (2004) 90 ITD 493 (Hyd) the issue regarding treatment of tide up grants was considered by the Tribunal wherein it was held that voluntarily contributions covered by Section 12 are those contributions freely available to the assessee without any stipulation, which the assessee can utilize towards his objectives according to its own discretion and judgment. The tide up grants for a specific purpose would only mean that the assessee which was voluntarily organization, had agree to act as a trustee of a special fund granted by the donor with the result that it need not be pooled or integrated with the assessee is normal income or corpus. In the said case, the reliance had also been based on the findings in the case of Nimral Agricultural Society Vs. Income Tax Officer. The relevant extract is as under:-

“10. The grants received from Bread for the World were for specific purposes. The grants which are for specific purposes do not belong to the assessee-society. Such grants do not form corpus of the assessee or its income. Those grants are not donations to the l assessee so as to bring them under the purview of section 12 of the Act. Voluntary contributions covered by section 12 are those contributions freely available to the assessee without any stipulation which the assessee could utilize towards its objectives according to its own discretion and judgment. Tied-up grants for a specified purpose would only mean that the assessee, which is a voluntary organization, has agreed to act as a trustee of a special fund granted by Bread for the World with the result that it need not be pooled or integrated with the assessee’s normal income or coiyus. In this case, the assessee is acting as an independent trustee for that grant, just as same trustee can act as a trustee of more than one trust. Tied-up amounts need not, therefore, be treated as amounts which are required to be considered for assessment, for ascertaining the amount expended or the amount to be accumulated.

11. The assessee should have actually credited that, grant in the personal account of the donor, Bread for the World and any amount spent against that grant should have been debited to that separate account of the donor. That incoming and outgoing need not be reflected in the income and expenditure account of the assessee. At the end of the project, the balance, if any, available to the credit of Bread for the World, the donor, could be treated as income of the assesses, if the donor did not insist for the repayment of the balance amount.”

14. The similar view has also been taken in the case of CIT Vs. M/s State Urban Development Society in ITA No. 210/2011 dated 29/10/2011 wherein it is held as under:-

“The Tribunal held that the society is acting as a nodal agency receiving grant from Government of India and state Governments and distributes to district authorities for implementation of various Schemes of Government of Indian and supervising the execution of Schemes. It has no discretion to utilize the amount as per own requirements. It also found that in case of nonutilization at the close of the Scheme, the funds are to be refunded along with interest to the Government of India and state Governments. The grants received by the assessee do not belong to the assessee-society. The grants do not form corpus of the asseesee nor is it income of the assessee under Section 11 of the Act. Such grants are not the donations or voluntary contributions under Section 12 of the Act. Thus, the grants received by the assessee should not be considered either as income or for ascertaining the amount expanded or amount to be accumulated. Provisions of Section 11 and 12 of the Act are not applicable for grants received by the assessee under the Schemes It further held that the assessee is statutorily required to file its intention of expanding the accumulated funds in future by way of Form No. 10.”

15. In view of the above binding decisions and in view of the discussions made as above, we do not find any legal infirmity or error in the order of the Ld.CIT(A) in deleting the addition made by the A.O and we find no merits in the grounds of Appeal of the Revenue. accordingly the Ground No. 1 to 6 of the Revenue are dismissed. Accordingly, Appeal in ITA No. 225/Del/2018 is dismissed.“

6. The Ld. Sr. DR in all fairness, agreed to the submissions of the Ld. AR that the facts and circumstances of Assessment years 2012-13 to 2014-15 are quite similar and identical to facts for assessment year 2011-12. Therefore, there is no valid reasons for us which may compel us to take a different view from the view taken by coordinate bench of the Tribunal in assessee’s own appeal for subsequent three assessment year order dated 23.09.2022. Thus, respectfully following the same ground of Revenue being devoid of merits are dismissed.

7. In the result, appeal of the Revenue is dismissed Order pronounced in the open court on 30.09.2022.